Greece's misery won't end with bailout vote

Port police officers take part in an anti-austerity demonstration in Athens on Nov 1

Greece is back on investors' radar this week as its parliament agonizes over new austerity measures aimed at averting bankruptcy.

But analysts believe the $17 billion package may buy only temporary relief for Athens as its debt burden continues to grow.

Lawmakers will vote Wednesday on labor market reforms -- including cuts to wages, pensions and severance terms -- that will pile on the misery for Greeks whose living standards have been slashed by years of recession, soaring unemployment, falling salaries and rising taxes.

A budget for 2013 will then go before parliament Sunday. Assuming Prime Minister Antonis Samaras' fragile coalition majority holds, eurozone finance ministers should release €31.5 billion from Greece's second bailout at a meeting Nov. 12, allowing the Mediterranean nation to redeem €5 billion in T-bills due four days later.

The deal would give Greece two more years to reach budget and debt targets set by the European Central Bank, European Union and International Monetary Fund when the bailout was agreed to in March. But this will leave a funding gap of €20-30 billion, and with eurozone countries reluctant to put fresh money on the table, the problem may just be kicked further down the road.

"The problem for investors today is that Greece is likely to deteriorate financially in the next year and is very likely to need additional funds (and face more budget cuts) in 2013," Paul Christopher, chief international strategist at Wells Fargo Advisors, said in a note.

The Greek economy has shrunk by about a fifth since 2008, adding more than 500,000 people to the jobless total in a country with a population of 10 million. The unemployment rate has more than tripled over the same period and now stands at 25%.

Nearly 3 in 10 Greeks were officially classified as "materially deprived" in 2011, up from just over 2 in 10 before the crisis hit, according to the Greek national statistics office, and those figures are likely to have deteriorated still further this year.

Greece has already taken the knife to labor costs, cutting the minimum wage by 22%. Workers in the tourism and hotel sector agreed to a 15% cut in pay earlier this year.

The crisis has provoked violent protests in recent months and a mass strike by public and private sector workers this week. Union leaders say the latest measures will simply suck Greece further into a downward spiral of economic contraction and poverty.

The Greek government said last week it expected the economy to contract by 4.5% in 2013. That would push its debt to almost 190% of GDP, and leave a primary budget surplus before debt servicing costs of just 0.4%, down from its original forecast of 1.1%.

Assuming the troika of the ECB, EU and IMF agree to a two-year extension to the bailout conditions, Athens would have until 2016 rather than 2014 to achieve a primary surplus of 4.5% of GDP, a target some economists still view as unattainable.

"The risk is that a new agreement, in the form it appears to be taking, could still make it difficult for Greece to achieve the targets," SocGen economist Michala Marcussen said in a recent note. "Ultimately, Greece needs growth and achieving this outcome will entail more money from the rest of the euro area."

However, rather than asking their own hard-pressed taxpayers to cough up more cash for Greece, eurozone ministers are likely to adopt a range of measures to help Athens avoid immediate default and a destructive exit from the euro.

Forcing Greece to issue more T-bills, reducing safety buffers in the original bailout program, lowering interest rates on existing loans and amending the parameters of the debt-to-GDP target of 120% by 2020 may all figure in next week's deal, analysts say.

And it will likely be accompanied by tough new monitoring measures, which will expose the Greek government to more political pressure at home.

Eurasia Group analyst Mujtaba Rahman said the monitoring could include the ECB operating an escrow account, releasing money only for debt financing and not general government expenditure if bailout conditions are missed, as well as funding cuts triggered automatically by any slippage and split disbursements until the next troika review mission.